Why are IPO stocks worth following for investors - A comprehensive guide from A to Z

Investing in the Thai capital market offers many channels. However, if you want to become a partial owner of a company from the start, IPO stocks might be an opportunity you shouldn’t miss. Supporting data from the market shows that some stocks have increased in price by over 200% in the initial phase. This article will help you understand in depth what IPO means, where to follow related information, and the steps to register.

What is an IPO - Basic Understanding Every Investor Should Know

Initial Public Offering (IPO) or the first sale of securities to the public is a process where a company decides to open its doors for the general public to participate in its business. The main goal is to raise additional funds from the broader market to develop and expand operations.

Besides raising capital, choosing to go IPO also helps build confidence and reputation for the brand under the supervision of the Securities and Exchange Commission (SEC) (Office of the Securities and Exchange Commission) and the Stock Exchange of Thailand, making investors feel more secure.

Benefits of Investing in IPO Stocks

1. Control and Transparency

When a company goes IPO, it must be under strict regulation by government agencies and the stock exchange. Financial information must be disclosed publicly, providing investors with sufficient data to make informed decisions.

2. Equity Distribution and Valuation

New shareholders benefit fairly from the company’s performance, sharing profits equally.

3. Short-term Profit Opportunities

IPO stock prices are often set quite low. When they enter the stock exchange, prices tend to rise significantly within a few days. Therefore, buying during the IPO phase could lead to quick high returns.

4. Suitable for Long-term Investors

Beyond short-term speculation, IPO stocks are also good options for those who want to hold shares for a longer period and collect dividends.

5. No Need for Complex Strategies

Investing in IPOs doesn’t require you to be an experienced analyst. Just studying the company’s basic information is enough to make a decision.

Risks and Downsides Investors Should Be Aware Of

1. Disclosure of Confidential Business Information

When going IPO, companies must disclose financial statements, tax data, and operations to the public, which competitors might use to their advantage.

2. High Costs

The IPO process incurs huge costs, including internal control system adjustments, audit fees, legal consulting, and securities issuance expenses. All these impact the company’s profitability.

3. Loss of Control Rights

After IPO, founders (Founder) may no longer hold the same proportion of shares. The board of directors might decide to dismiss major executives, reducing their decision-making power.

4. Changes in Management Structure

Once listed, the company must have an independent board of directors and an audit committee (Audit Committee), separate from daily management, which may differ from the original structure.

Conditions Companies Must Meet to Go IPO

Companies seeking to raise funds via IPO must meet the qualifications and comply with the requirements of the SEC and the stock exchange as follows:

Company Status

• Must be a public limited company or a legal entity under Thai law.
• Shareholders’ equity must be at least 300 million THB before fundraising.

Performance

Companies can choose one of the following criteria:

• Net Profit Criterion: Must have a cumulative net profit of over 50 million THB for 2-3 consecutive years, with at least 30 million THB in the most recent year.

• Market Capitalization Criterion: Market value (Market Capitalization) exceeding 7,500 million THB.

Operational History

• Must have been operating for more than 3 years.
• The management team and board members should have stable roles for over 1 year.

Management Structure

• Must have independent directors meeting specified qualifications.
• Must have an audit committee (Audit Committee).
• No conflicts of interest.

Documents and Standards

• Financial statements must comply with accounting standards.
• Auditors must be approved by the SEC.
• Must establish a statutory reserve fund as required by law.

Where to Check IPO Stock Information

Investors can follow IPO information through various channels:

SET Website (Stock Exchange of Thailand)

• View the list of companies under consideration (Upcoming IPO).
• Check IPO prices and par value.
• Download additional documents for each company.

Information You Should Study

• Purpose of fundraising.
• Offering period and price.
• Total fundraising amount.
• Company profile and future business plans.

The Process Companies Must Go Through to IPO

Before IPO stocks are available for investor subscription, companies must go through several steps:

1. Study regulations and contact financial advisors.
2. Prepare permit documents.
3. Convert to a public limited company.
4. Set IPO price and promote.
5. Establish a statutory reserve fund and appoint a registrar.
6. Prepare shareholder register and register in a dematerialized system.
7. Submit IPO application to the SEC.

Key Parties Involved in the IPO Process

Multiple parties are involved in executing an IPO:

• Stock Exchange of Thailand (SET): The central marketplace for securities trading.
• SEC: Reviews qualifications and approves the offering.
• Auditors: Verify financial statements according to standards.
• Legal Advisors: Provide guidance and prepare documents.
• Valuers (Valuer): Appraise asset values.
• TSD Company: Maintains shareholder register.
• Underwriters ###Underwriter(: Help distribute IPO shares.
• Financial Advisors: Offer ongoing advice throughout the IPO process.

How IPO Pricing Is Determined

IPO prices are not random; they result from careful analysis. Most prices are set relatively low to attract investor interest and enable potential profits.

Valuation is typically done through Book Building—a process of gauging investor demand. Financial advisors gather this data to determine an appropriate price.

Two Main Methods to Purchase IPO Shares

) Method 1: Buy Before Market Listing ###Primary Market(

• Investors can subscribe to buy IPO shares during the specified period.
• The sale price is usually lower than the market price.
• Many investors hope for high returns from this channel.
• Subscriptions can be made via SET, company websites, or securities firms.

) Method 2: Buy After Market Listing (Secondary Market)

• After the company is listed, existing IPO investors may sell shares on the stock exchange.
• Those who missed the initial opportunity can buy from the secondary market.
• However, prices are often higher than during IPO.
• Price volatility in the initial days can be significant.

Example of IPO Stock Valuation Calculation

Suppose a company starts with:

Initial Situation

• Founders: 1,800,000 shares
• Par Value: 2 THB/share
• Total Investment: 3,600,000 THB

At IPO

• New shares issued: 800,000 shares
• IPO Price: 15 THB/share
• Funds raised: 12,000,000 THB (800,000 × 15)

Post-IPO

• Total shares: 2,800,000 shares
• Founders’ ownership: 69.23%
• IPO investors’ ownership: 30.77%
• Founders’ stock value: 27,000,000 THB 15 × 1,800,000

Important notes:

• Par value remains unchanged, but IPO price is higher because the company has developed.
• If initial shares were valued at 2 THB, the current market valuation might be 15 THB.

Impact of IPO on Economy and Market

Raising funds via IPO positively impacts the economy:

• Fosters growth: Companies get capital to develop, creating more jobs.
• Builds confidence: Multiple IPOs reflect a healthy economic signal.
• Benefits investors: The public can become owners and earn returns.

However, if companies do not raise funds, they may face difficulties, and operations could halt.

Summary and Tips for IPO Investors

IPO stocks are an attractive investment channel for all investor levels, whether short-term speculative or long-term dividend earners.

Key points to remember:

• Investing in stocks is about knowledge, not just skill.
• The more you study, the higher your chances of success.
• Understand the company’s profile, fundraising purpose, and future plans.
• Regularly follow SET updates.
• Consider risks carefully; avoid over-leveraging in speculation.

With proper knowledge and understanding, investing in IPO stocks can be a pathway to sustainable wealth for your future.